The voters know it’s a hard road, but they won’t want to turn back

Even though times are tough, there is no appetite for a return to Labour’s failed policies

One of the most terrible consequences of the financial crisis and the recession that followed has been the toll it has taken on the standard of living for millions of households. Wages in the private sector have fallen, sometimes acutely, while inflation has remained persistently high. As a result, people have less money to spend, and what they have buys less each year. The economy shrinks, so do our wallets. We are made poorer nationally and individually. The impact is felt in particular by those on low incomes and middle incomes, from shopworkers to pensioners. When the next election comes on May 7, 2015, our collective answer to Ronald Reagan’s question – “Are you better off than you were four years ago?” – might be a terse “What do you think?”

The Great Communicator posed his election winner in 1980, more than 30 years ago, a week before America went to the polls, in the only presidential debate with Jimmy Carter. It was a defining moment that captured the consequences of years of economic malaise, and sealed Reagan’s transformative victory. Since then the question has been recycled many times, usually by challengers trying to expose the failings of an incumbent. Some have deplored the crudeness that reduces politics to a measure of personal profit or loss, but there’s no denying that it serves as a neat way of focusing our elected leaders on the basics.

An iron law of politics holds that few governments win re-election when standards of living are falling in real terms. If inflation outstrips wages, voters notice, and respond accordingly. Inflation is running at 2.7 per cent, and is expected to rise a bit more before falling back to 2 per cent in 2015. Wages are expected to grow by about the same amount, so in real terms earnings will barely move between now and polling day. Strip out the protection afforded to public sector salaries to match prices and the effect on the private sector is particularly acute. Between 2007 and 2011, wages fell by an average of 3 per cent (by comparison, between 1989 and 1993, another time of economic contraction, they rose by 9 per cent). On this basic measure, the task facing David Cameron and George Osborne is daunting.

Among Cabinet ministers there are those who wish the Government was better at talking about what it is doing to mitigate increases in the cost of living. To their mind, Downing Street spends too much time indulging in issues that have little resonance with the voters. They want a steady focus on the pocketbook worries that preoccupy families struggling to make the wage packet last to the end of the month in the face of relentlessly climbing fuel, food and housing costs. Gay marriage and Europe, they point out, rarely make it into the top 10 of causes that matter to voters in hard times. “Our failure to address this head-on is a persistent problem, and we are running out of time,” one says. “We’ve got to stop fighting over issues people don’t care about and start talking about those they do, or we will lose.”

This critique covers rhetorical rather than policy failings. The Treasury has poured resources into countering the squeeze on incomes and living costs. George Osborne has sacrificed just under £5 billion in projected revenues by scrapping rises in fuel duty, money he had to account for elsewhere. Close to £10 billion has been spent raising the threshold for the starting rate of tax to nearly £10,000, a measure which allows those on low and middle incomes to keep hundreds of pounds a year more. The wealthy are having to bear a disproportionate share of austerity precisely so that the Government can leave more money in the hands of those with less. What is missing is a consistent message that is relevant to the economic preoccupations all households feel.

The Tories will go into the election hoping that the voters will be motivated by how things are then, rather than how they have been. If wages are rising again, inflation is under control, and there is a palpable return to prosperity, Mr Cameron and Mr Osborne will be able to argue that they have navigated Britain through the worst and out the other side (with the odd spot of drift and plenty of tacking). That is what they hope the electorate will notice. In 1983 the Tories argued “Britain’s on the Right track, don’t turn back”; in 2015 they might ask “You aren’t much better off now, but will you be any better off if Labour comes back?”

On the Labour side, where Ed Balls has been pressing his argument that the Government’s biggest failure is the lack of growth and jobs for young people, voices are being raised among those around Ed Miliband who want to see a greater emphasis on the cost of living. Labour’s economic policy, or rather its lack of one, is a growing cause of internal anxiety. Mr Cameron’s attacks at Prime Minister’s Questions on Mr Miliband’s lack of “seriousness” are having an effect. Tony Blair has urged his successor to get on with the task of fleshing out his priorities. How to score points off the Tories when Labour has awkward questions of its own to answer is a conundrum that explains why some are now urging the Labour leader to ask voters if they think Mr Cameron has made them richer or poorer. “Growth doesn’t mean much to people. It’s too abstract,” one member of the shadow cabinet says. “We keep banging on about the risk of a triple-dip, yet even if it happens it won’t register with most people. What they worry about is jobs, wages, and the cost of things. Let’s ask about wages and living costs.”

Yet the effectiveness of that question depends in part on the credibility of the questioner. If Mr Miliband wishes to follow that path, he must first have a believable account of what he would do to increase wealth. He can permit spending – and therefore taxes and borrowing – to rise in an attempt to stimulate growth, but the voters show no appetite for a return so soon to the failed economics of the last government. Or he can restrain public spending to allow tax cuts, which would mean surrendering to the Tory argument.

There is plenty of evidence around to suggest that things are slowly, imperceptibly looking up. By the time of the election, circumstances may have changed markedly. The markets seem to be projecting a monetary tightening by the end of 2014, when interest rates will have to go up to rein in inflation. The stock markets are certainly optimistic, but in more reliable parts of the economy there are signs of jobs being created, investments being made. Mr Osborne hopes we will see steady growth by the second half of the year. He talks of a hard road and keeping in the right direction.

Should Mr Cameron worry then about being put on the spot in 2015? If Mr Miliband faces the cameras during one of the TV debates and asks us if we feel better off than we did when the Coalition was first formed, will that trigger a collective slap of the forehead and a stampede to give Labour our votes? The answer, after all, may technically be “No”. It is too much to hope that we will have caught up all that lost ground – all that destroyed wealth – in time for the general election. We will not, in purely monetary terms, be better off.

The electorate, I suspect, are wise to that. We know we are poorer, and cannot expect a return to the credit-fuelled artificial wealth that kept us going for more than a decade. However the politicians frame the question, we will surely vote on the prospects for our future prosperity.